Relatively recently joined the functional market economies club, although it has multiple pending development (not just economic) issues, Romania looked around and chose a poisonous… Mai mult›
Spectacular GDP growth in Q1: 5%, in the context of rhythm decline in manufacturing to just 1.2%. Dilemmas
Gross Domestic Product for the first quarter of 2019 increased by 5% in real terms compared to the same period of the previous year (5.1%… Mai mult›
Simply put, data recorded over time in the monthly budget implementation published by the Ministry of Finance indicate a share of staff costs in total… Mai mult›
Germany (16.9%), France (11.7%) and Italy (9.5%) are the countries with the largest share in Romania’s economy by the number of employees in 80,905 groups… Mai mult›
Budget implementation in Q1, short and simple: wages and social spending up, general and local investments down, co-financing for projects implemented with European money down
The general consolidated budget recorded, after the first two months of 2019, a deficit of about RON 5.5 billion, equivalent to 0.54% of the GDP… Mai mult›
de Adrian N Ionescu , 5.11.2018
If the employer, whether private or state-owned, cannot offset the rise in wage costs through a corresponding revenue increase, it will either cut other costs or diminish its surplus, “if it would still have one,” explains Horia Braun Erdei, the Chief economist of BCR, in the bank’s monthly report on Romania.
As the “wage costs roller” seems unstoppable, the employer comes to registering a loss or a deficit – in the case of state-owned ones. And deficits are paid by higher interest rates and, ultimately, lower inflation and purchasing power.
“We have the following evidence: after four continuous years when wages in the economy grew faster than productivity (Chart 1), deficits rapidly gathered in the foreign trade and current account of the balance of payments, as well as in the public sector (Chart 2),” according to the report.
- Graphic 1: Increase in real terms of (net) average national wage constantly and significantly exceeded labour productivity growth over the last four years
- – real annual increase in labour productivity
- – real increase of net average wages
- Graphic 2: Romania’s twin deficits, in a quick expansion
- – the current account of the balance of payments (million euro)
- – consolidated general budget deficit (million euro)
- Note: Figures represent values in euro cumulated in the last available 12 months
But the Government responds to the evidence with an “almost schizophrenic duplicity because the message sent to Brussels in one thing and the one delivered to the Romanian public is something else,” says BCR Chief Economist. And he explains:
On the one hand, the Government tells the European Commission that it will fall into the structural deficit target by freezing wages in 2019, but the Finance Minister says in the country that it is just a “scenario” and not a commitment.
“The government also has no problem going to Parliament with a draft law on pensions that involves massive future spending, without specifying in any way how to finance them,” recalls Horia Braun Erdei.
At the same time, “as if the problem of salary costs is only in the public sector, because, isn’t that so, the private sector is mature enough to manage that, the Government pushes forward a new round of the increase in the national minimum wage,” adds the economist.
Romanian leu at “a crossroads”
The current account deficit will not delay in putting pressure on the Romanian currency, which is hard to bear with the only support of BNR policy, especially as internal factors (the “twin deficits”) add to external ones, namely the increasing attractiveness of the dollar, as a result of the interest increase.
However, “while in the past the Romanian leu has been protected to a certain extent by the interest rate increases decided by BNR, it was not the case anymore now, and the national currency seems to be heading a rather weak end of year,” writes analyst Eugen Sinca, in the same report of BCR.“Romania’s significant foreign deficit, which overall means high imports of goods and the repatriation of foreign currency to other countries, maintains Romanian currency’s depreciation trend in an external context that affects almost all emerging economies,” the analyst concludes.
BCR estimates the exchange rate at 4.68 RON /euro at the end of the year.
Lăsați un comentariu
The National Bank increased the inflation forecast for 2019 by 1.2 percentage points, from 3% to 4.2%. Also, the forecast for 2020 goes up by… Mai mult›
Emergency procedure at European Court of Justice for Romania’s question: Are MCV recommendations mandatory?
The Court of Justice of the European Union (CJEU) has decided that Bihor Court’s request to be discussed under the emergency procedure, which is a… Mai mult›
Government decides to increase external borrowing ceiling by EUR 4bn. It has consumed program resources for two years
The Government's agenda for Wednesday also includes the draft decision to increase the foreign loans ceiling for 2019 and 2020 by EUR 4 billion, up… Mai mult›
On Tuesday, the European Commission presented a series of policy recommendations on how Europe can shape its future within an increasingly uncertain and multipolar world.… Mai mult›
Meeting between Prime Minister Viorica Dancila and Chinese Prime Minister Li Keqiang: talks on a possible involvement of Chinese companies in PPP projects in Romania
On Friday, Prime Minister Viorica Dancila had a meeting with Chinese Prime Minister Li Keqiang, during which she stated her interest in involving Chinese companies… Mai mult›
So-called "Belina Law" was adopted. Opposition will refer CCR: it turns Belina Island into a fiscal paradise
The Chamber of Deputies adopted on Tuesday the bill that provides for a derogating tax regime, such as tax exemptions or reductions, for land and… Mai mult›
Deveselu shield is undergoing an upgrade process; the US provides alternative defence capabilities with THAAD systems
Aegis Ashore anti-missile system installed at Deveselu 99 Military Base will go in the next period through a previously planned upgrade process, the MApN announced… Mai mult›
How 2019 began: Investments, allocations by 78.5% lower than the same period of 2018. 21% decrease in co-financing for attracting European funds
The consolidated general budget recorded a deficit of 0.5% of GDP in the first two months of 2019 namely RON 5.2 billion, a "performance" only… Mai mult›
Romania's GDP exceeded Portugal’s in 2018: which has a population two times lower and a GDP/inhabitant twice as high
Romania's economy exceeded, at current prices in euros, Portugal's economy in 2018, a country with a population and a surface two times smaller as Romania.… Mai mult›
The Ministry of Public Finance published Tuesday evening, a day and a half before the approval in the Government, the draft OUG that amends the… Mai mult›
The Justice Ministry has prepared the two OUG drafts for which the coalition has put much pressure on the Justice Minister Tudorel Toader before granting… Mai mult›
ECOFIN / Tax havens list has been updated. Politico: Eugen Teodorovici took EU Finance Ministers by surprise
Finance Ministers of the EU voted on Tuesday at the third meeting of the Council for Economic and Financial Affairs (ECOFIN) chaired by Romania, the… Mai mult›
Dozens of companies, mayoralties, sports teams, public figures, organizations and many ordinary people joined the protest "Romania wants motorways". Of course, the country did not… Mai mult›
Facebook announced Thursday that it has closed hundreds of false accounts promoting false content in the UK and in Romania and this is the first… Mai mult›
Laura Codruta Kovesi was indicted on Thursday in a second case. The section for investigating the crimes committed by magistrates accused her of having led… Mai mult›